Here’s how to reduce capital gains for your home sales

Once US home equity climbs, owners are more likely to face capital gains taxes from the sale of assets. But a lesser-known tax strategy can help reduce your invoice, experts say.

When selling your main home, there is a special tax credit that protects the profits of a single filer up to $250,000 and $500,000 jointly filed with married couples. However, certain rules must be met.

A 2024 report from real estate data company CoreLogic shows that the number of home sellers is on the rise. Almost 8% of US homes sold in 2023 exceeded the $500,000 capital gains tax for married couples, up from about 3% in 2019.

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These percentages were even higher in high-cost states such as Colorado, Massachusetts, New Jersey, New York and Washington, according to a CoreLogic report.

Tommy Lucas, a registered agent with a certified financial planner at Moisand Fitzgerald Tamayo in Orlando, Florida, said that going beyond the $250,000 and $500,000 exclusions is “becoming more common.”

Profits from home sales above the $250,000 or $500,000 threshold are subject to a capital gains tax of 0%, 15%, or 20%, depending on your taxable income.

According to Mark Baran, managing director of the national tax office at financial services firm CBIZ, many home sellers can reduce capital gains by increasing the original purchase price of their “base” or homes. I don’t recognize it.

You can increase the foundation by adding “capital improvements” such as renovations, new roofs, external upgrades, or replaced systems.

Your “adjusted base” is usually the cost of purchasing your home and the capital improvements made while you own the property.

“It increases over time and can bring them perfectly within the exclusion ($250,000 or $500,000 capital gains),” Baran said.

However, according to the IRS, it is not possible to add additional home repairs or maintenance such as leaks, holes, cracks, or replacing broken hardware.

Lucas says that adding fees and closing costs from the purchase and sale of the home can also reduce profits from home sales.

The IRS says some of these costs can include:

Title Feature and Record for Utility Installation FeessurveyStransfer TaxEstitle Insurance Balance

“Maybe it will bring you thousands,” added Lucas, in an effort to reduce profits.